Some tax bill changes could have big impact on motor carriers

From the Scopelitis firm.

As everyone is well aware, yesterday Congress passed the new tax reform bill. While the bill’s new higher standard deduction, reduced corporate tax rates, and scrapping of the Obamacare individual health insurance mandate have received widespread attention in the news, there are a few provisions in the bill receiving little attention that may have a significant impact on motor carriers and others in the transportation industry. Two such provisions are briefly outlined below.

  1. Removal of the Unreimbursed Business Expense Deduction. Under the new bill, individual taxpayers may not take any of the itemized deductions that were previously subject to the 2% floor (meaning taxpayers could only deduct such expenses to the extent they exceeded 2% of adjusted gross income under prior law). This is key because one of the previously allowed-for deductions related unreimbursed business expenses incurred by employees while away from home on business (e.g., meals and incidental expenses). Over-the-road employee drivers commonly used this provision to deduct the substantial meal and incidental expenses they incurred while driving away from home overnight. Under the new bill, employee drivers will no longer be able to deduct such expenses when they file their individual tax returns. The “trade-off” for the loss of this and other business expense deductions by individuals appears to be the increase in the standard deduction from $12,000 to $24,000 for jointly filing married couples.

On the other hand, the bill appears to continue to allow owner-operators and employers of over-the-road (“OTR”) drivers to deduct 80% of reimbursed meals and incidental expenses (“M&IE”) incurred by such drivers pursuant to accountable expense reimbursement plans. Therefore, it seems that motor carriers may still treat the amount of a driver’s compensation that accounts for the meal and incidental expenses OTR drivers incur while away from home overnight as non-taxable under a per diem plan. How the change in deductibility of unreimbursed business expenses by individual employee drivers may ultimately impact the IRS’s view of per diem plans remains unclear, but we will be closely monitoring the issue for any further guidance.

  1. Limitations on 1031 Like-Kind Exchanges. Under current law, if a taxpayer exchanged property held for use in the taxpayer’s trade or business or for investment for property of a “like-kind” also intended for use in the trade or business or for investment, the taxpayer could avoid recognition of any gain or loss on the exchange of the property. The new tax bill limits the availability of like-kind exchange treatment to real property not held primarily for sale, with an effective date of December 31, 2017. As of the end of the year, motor carriers and others in the industry will no longer be able to defer gains and losses through like-kind exchanges of trucks and other equipment.